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News that senior energy industry insiders are predicting further price rises of up to 40% this year will be a blow to cash-strapped Brits, says uSwitch.com.
It could mean the average household energy bill hitting a crippling £1,467 this winter - average bills were £912 in January 2008, so in total, consumers are looking at a 61% or £555 increase in household energy bills in a year.
1.6 million more in fuel poverty
A further 40% increase in energy prices would also plunge an extra 1.6 million into fuel poverty, taking the total to 6.1 million - a 36% increase.
With the economy faltering, inlation increasing and house prices falling, the only certainty is that families will increasingly struggle to meet their essential living costs and that worsening economic conditions will restrain consumer spending even further.
Energy spike not temporary
The bad news is that the spike in energy prices does not look like a temporary situation and consumers will have to adjust to paying far more for their gas and electricity. According to the Bank of England, wholesale gas prices have increased by 160% in the year to May.
But unfortunately suppliers haven't caught up with the increase in prices - as they have yet to pass these on to consumers - and any respite from a downward trend in prices as demand drops during the summer months has, as yet, failed to materialise.
Even if bills hit £1,467 by the end of 2008, consumers may not be over the worst. If current wholesale gas trading prices continue at £1 per therm, this could translate into a further 10% to 15% going onto household energy bills in the first half of 2009.
'High High' price explosion possible
Of most concern is the fact that BERR has felt the need to reflect current trends by introducing a new modelling scenario called 'High High' when looking at the future of wholesale gas prices. In the 'High High' scenario the average wholesale price is 67 pence per therm for 2010, increasing to 92 pence per therm in 2015.
The fact that such a situation is considered feasible enough to warrant BERR building a scenario around it is enough to set warning bells ringing.
The UK also has a lack of storage capacity, which means it has to turn to Europe when demand for energy exceeds available supply, leaving it vulnerable. Year-ahead wholesale gas prices in the UK are 16% higher than in Europe and consumers in this country have seen price rises this year outstrip those made in the continent.
The news will be a blow to the Bank of England, which only this week revealed that CPI inflation has hit 3.3%. In his letter to the Chancellor, the Governor of the Bank of England said that the sharp increase in inflation from 2.1% in December to 3.3% in May was largely down to the increased cost of food, fuel, gas and electricity, which alone 'account for 1.1 percentage points of the 1.2 percentage points increase in the CPI inflation rate since last December.'
Consumers hit hardest
But arguably the biggest blow will be for consumers, who are already struggling with falling house prices and rising food and fuel costs. While net salaries have increased by £44 a month on average this year, household expenditure on essentials such as fuel, energy, food and mortgages have increased by £148 a month - a 9% increase on the cost of the same items in 2007.
Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "The days of cheap energy are over. Households could see the largest ever increase in household energy bills this year. If suppliers do increase bills by a further 40% by this winter then consumers will have seen a 61% or �555 increase in household energy bills in a year. If average energy bills do hit £1,467 by the end of 2008, spending on energy will account for 5% of the average household's net income."
She continued: "Consumers cannot afford to ignore this... and if you've never switched supplier before you will probably save money immediately by moving to one. However, the best fixed and capped deals are disappearing fast so consumers need to act quickly."
